Mixed Signals Result in Declined Profit

As foreseen by analysts in the previous year’s performance, Nile Insurance Company’s profit after tax has dived by 27.7pc to 46.89 million Br and earnings per share (EPS) have plunged to 311 Br from 598 Br. The gap however is not fully attributable to decline in performance or revenue but chiefly due to absence of income from other sources and the non-calculated long term insurance life income fund.
“Life insurance is only counted in profit calculation once every three years,” explained Ermias Teshome, Marketing & Corporate Communications manager. “As we have done so last year, the same significant impact on profit after tax will be there in the year 2015/16 too.”
He added that the increase in salaries and general administrative expenses were in line with Nile’s long term plan of strengthening its market position.
But Abdulmenan Mohammed Hamza, accounts manager with the London based Portbello Group finds it alarming that salaries and benefits have increased by 10 million Br to 68.27 million Br.
The insurer has also carried out huge payments that rolled down from previous years, causing a sharp drop in the profit. Nile has provided 4.61 million Br for doubtful debts, whereas it had set aside 5.09 million Br in 2014.
“The practice of keeping massive provision in one year and reversing in the other has the impact of distorting financial performance, so the management of Nile should have better methods of assessing those doubtful debts,” Abdulmenan commented.
“We had no option but to pay it all at once, it is something fully external to the Company with no room for negotiation,” Ermias defended.
The five million payment for doutful debts and three million Br for turn over tax payment that rolled over from last three years took the lion’s share of the decline of the profit, which Nile says is all explainable.
“The decline was mainly due to expenses, payments and escalating claims and have not much to do with declining premium,” said Ermias. “All in all it was not a great year but still growing,” he said trying to integrate the double face performance of the year.
Underwriting surplus of general insurance has increased by 27.3pc to 75.22 million Br. This increase has been due to growth of gross premium by 14pc to 342.71 million Br and increase in retention rate to 87.5pc from 85.7pc. However, the expansion in gross written premium and increased retention rate has resulted in increased claims.
Chairperson of the Board of Directors in his statement on the report put the same tone in a different context, zooming in on industry level rules of the game.
He claimed that lack of cooperation among industry players especially in maintaining market discipline had negatively affected the company’s competitiveness.
“Price cutting is what lies at the heart of unfair competition practices in the industry,” the Marketing Manager said. “Price penetration is common with new entrants that try to win customers over from older companies.”
In Ethiopia a tiny percentage has access to insurance such that penetration rates do not surpass 2.5pc of GDP. These rates barely compare to the 16pc in South Africa, for example.
Claims paid and provided for and other technical provisions have soared by 18.4pc to 192.46 million Br. Net insurance commission has also increased by 25.4pc to 13.02 million Br.
Motor coverage at Nile stands at 65pc, a little lower than the industry’s 68pc. Growing motor related accidents have also accounted for 62.3pc of the claims paid, an increase by 48pc.
The country in general is suffering from high number of accidents and casualties on life and property. In 2014/15 in Addis Abeba only, 17,052 vehicles killed around 418 people, while the property damage was estimated to value 194 million Br.
Workeneh Gebyehu, minister of Transport announced that around 500 million Br in property damage occurred each year country wide with 3,000 people dying every year from road accidents. Currently in Ethiopia the rate has reached above 3,874.3 deaths per 100,000 trucks.
Nile has increased its paid up capital by 56.78pc to 156.78 million Br. The Company’s total capital and reserves represent 28.59pc of its total assets. Abdulmenan recommended that Nile use its strong capital base to bring in more income as it is well-capitalized. It’s increased liquidity is also well established and liquidity analysis indicates that cash and bank balances to total assets ratio has gone up to 3.45pc from 2.12pc
“We are focused on long-term positioning and stand ethically strong in the infant, yet unfair industry behaviour, which will indirectly negatively impact the already non-existent contribution of the sector to the overall GDP,” Ermias told Fortune. He further recommended that the Association, comprising membership of insurance companies, can highly change this culture and create a robust sector.
The other sector- wide problem is challenges in management appointment which stood high in the Nile’s performance.
For more than six months Acting CEO, Meberu Dibekulu could not make it to fully fledged position due to the stringent requirements.
It is only before a month ago that the Central Bank sent a letter of acceptance for Melaku Sisay’s appointment.
Melaku Sisay, 59, has been serving Nile for the past ten years. He began his career with Nile as Manger of the Internal Audit Department and he remained in that post until he was promoted to CEO of the company in December, 2015.
Melaku, a married man, is a certified accountant also worked in a number of institutions as an auditor before he joined Nile.
He received his B.A in Accounting from Addis Abeba University.